Roth Conversions & Est Tax
I have been using & expect to continue quarterly estimated tax payments because the irregular “income” and a general unwillingness to use IRA money (as with-holding) to pay taxes (as long as I can avoid it). However, when I overpay and then receive a refund, I have to add this refund as part of next years income on my taxes ! even when it was after-tax money to begin with ? and then pay taxes on it again ? double taxation ?
This predicament also reduces the room I have for next years conversion before hitting a self-imposed income limit (tax brkt & IRMAA)
Odds are I am missing something.. otherwise I better err on the side of being slightly underpaid at year end but definitely over last year and/or 90%.. whichever is the lesser I assume ?
Please Advise, Thanks
Permalink Submitted by Alan - IRA critic on Wed, 2021-08-18 23:19
There should not be double taxation. Perhaps you are referring to state income tax that you are itemizing on your federal return, then get a state income tax refund and have to report it as income in the year you receive it? If so, you would get a 1099 G from your state showing the refund. If you did not itemize the state income taxes or if your added deduction for state income taxes did not exceed your standard deduction by much you only have to report the amount of the 1099G that you received a tax benefit for. Again, if you are not itemizing state income taxes on your federal return, then you need not report the 1099 G income from your state refund on your federal tax for the following year. Any federal tax refund should not cause a problem except in a couple states.